Early warning? Hanjin collapse

Whilst this may seem tangential to Acumen, the background and implications are troublesome.

A robust economy would not thriw up such challenges. The flow on effects through the supply chain are widespread. And the refusal of the Korean Government to assist is a major policy change.

Hanjin Shipping Co Ltd’s banks are halting support for the South Korean company, its lead creditor said, making it likely South Korea’s largest shipper (and the worlds 7th largest) is headed for bankruptcy as it is dragged down by a deep global industry downturn.

“Shipowners’ Hanjin exposure tops $1bn as arrears mount” [Lloyd’s List]. “THE unprecedented Hanjin Shipping debacle has put shipowners in a tough spot with regards to damage claims. Danaos, Seaspan and Navios Maritime Partners each have vessels chartered to Hanjin, with over $1bn in total contracted revenues….”

Shipping: “Woes at Hanjin, South Korea’s largest sea container shipping firm and the world’s seventh-biggest with a 2.9 percent market share, are derailing the supply chains of companies that need to send goods well in advance of the year’s biggest shopping season as Thanksgiving and Christmas holidays approach. TVs, cars and sneakers sail about 10 days to reach Los Angeles from Asia while they could take as many as 30 days to Rotterdam” [Seattle Times]. And: “Hanjin Shipping is part of Hanjin Group, which also owns Korean Airlines, the world’s third-largest cargo airline. Korean Air loaned funds to Hanjin Shipping and bought shares in the container line in 2014 to become the biggest shareholder with 33 percent.” Hmm.

“South Korea’s decision to withdraw support for its largest shipping company has sent shock waves through an ailing global industry. It also shows Seoul’s toughening stance when it comes to troubled firms” [Wall Street Journal, “South Korea’s Hard Line on Hanjin Shipping Signals New Attitude”]. “Hanjin Shipping Co. ‘s potential bankruptcy would be the largest container-shipping failure in history, dwarfing all previous carrier bankruptcies, says shipping consulting firm Alphaliner. Not knowing whether they would get paid, ports and handlers from South Korea to China, the U.S., Canada, Spain and elsewhere have refused to handle its cargo. That has stranded 45 ships at sea, according to the company, and more than half a million containers.” Read the whole article for detail on Korean bailout politics, and why Hanjin got the chop.

“‘The biggest problem is what is going to happen to cargos at sea. We are just praying that our cargos are not seized,’ said Ra Kyung-moon, executive vice president at Forman Shipping, a freight-forwarding firm in Seoul” [Fortune]. “Freight-forwarding firms, which organize shipments, may be held liable for customer cargo that doesn’t arrive and are also worried about the recovery of funds paid to Hanjin in advance for services promised.”

‘Retailers’ main concern is that there (are) millions of dollars’ worth of merchandise that needs to be on store shelves that could be impacted by this,’ said Jonathan Gold, the [National Retail Federation’s] vice president for supply chain and customs policy. ‘Some of it is sitting in Asia waiting to be loaded on ships, some is already aboard ships out on the ocean and some is sitting on U.S. docks waiting to be picked up. It is understandable that port terminal operators, railroads, trucking companies and others don’t want to do work for Hanjin if they are concerned they won’t get paid’” [US News]. Presumably governments [Hi, Penny Pritzker! (waves)] could step in at the receiving end, but what happens at the point of origin? Since there’s a good deal of money at stake, presumably this will happen, but….

Also, Maersk Line the largest container shipping company in the world, so it too deserves close attention. Times have been tough for shippers, but Maersk expects the business to get even worse.

“Currently we are challenged by market headwinds,” said CEO Soren Skou during the latest earnings call, “…in the form of low growth and excess capacity in both our industries, and that has led to declining prices and declining revenue.”

And Jakob Stausholm, a member of Maersk Line’s management board, told Reuters, “It’s really tough, and everybody in the industry is really suffering, and so have we.”

Maersk isn’t the only shipper singing the blues. “World GDP growth is struggling… Combined with trade growth slowing down, this is a recipe for a very bad market,” said Evangelos Chatzis of rival shipper Danios.

in an increasingly volatile world knowledge of forward trends is vital in generating strategy and decisions… What impact could this slowdown have for you?